Ag lender shows budgeting benefits farmers can count on
What sets successful farms apart? After 20 years of signing off on farm loans, I’ve met all kinds of farmers. Most of them have three things in common: they’re hard working, innovative and visionary.
So what makes one farm more successful than another? The answer is usually good, old-fashioned budgeting.
Most farmers’ approach to success is to work harder. But an effective budget helps you to work smarter.
Here are three ways that setting a budget makes life easier for farmers:
1. Say goodbye to guesswork
Keeping track of your budget is the best way to monitor what’s working and what isn’t. Not all farm land is created equal, and your numbers will reflect that. A good rule of thumb when growing your number of acres is to minimize risk by choosing a good mix of sand and heavy ground. Pay careful attention to your budget so that you can quickly determine the areas that are most profitable.
Apply the same logic to your seed, chemical, fertilizer, equipment and practices. Monitor your budget to see which choices pay off and which don’t. Being diligent in this area helps you quickly adapt your approach to maximize profits and avoid wasted funds.
To further boost your financial position, budget with three practical goals in mind. First, book crops at a profitable level. Second, plan to prepay crop inputs like seed, fertilizer and chemical for a discount. Last, watch your equipment debt per acre – you always want to avoid term debt payments when possible, and your budget will show you whether you need more acres to spread fixed costs.
Budgets also eliminate guesswork by clarifying whether outside income is needed to offset expenses. For example, hunting and recreational income might be advisable if numbers are lean.
2. Speak your lender’s language
When you walk into your bank for a crop loan, there are four pieces of information to have on hand. The first thing you want to provide – you guessed it – is a projected budget.
This key piece of preparation goes a long way to show your lender that you’re a good investment.
You can further wow your banker by bringing a financial statement, a crop plan for the coming season and a summary of historical yields.
The same principles apply for all kinds of loans – poultry or cattle, for example. Not only will these simple preparations give you an easier time obtaining loans, you’ll also put your bookkeeper, accountant and/or advisor miles ahead by being prepared.
3. Know where you’re going
Not only does a budget help you plan for the year’s operational and capital expenditures – financial planning also gives you a bird’s eye view for where you’re headed.
Your budget can provide a step-by-step guide for how you plan to grow and expand your farm in years to come.
Chad Pittillo is Simmons Bank’s lending manager for Pine Bluff, Ark.
